Tag Archives: Berkshire Hathaway

03.02.2013 | Mergers and Acquisitions: A Comeback

By Alexandra Kaiser, guest blogger, Kent Place School alumna and undergraduate at New York University

I have been reading many news articles on recent mergers and acquisitions. 2013 started off with companies spending $219 billion on M&A. Compared to the $85 billion they spent in the same period last year, this is $134 billion more! There was the announcement of American Airlines and US Airways merging. Also, 3G Capital and Warren Buffett’s Berkshire Hathaway said they would acquire H.J. Heinz. (more below)

Is this sharp increase in M&A spending a good sign for the economy?

Yes, M&A activity is a good sign for the economy:

One main factor behind more mergers and acquisitions is the strength of the stock market. Reflected by a Dow near its 2007 historic high, nowadays, the stock market is in a better place since the financial crisis. With higher share prices creating an incentive for company heads to expand and take more risks, a merger or acquisition can add to a company’s financial strength. For the OfficeMax and Office Depot merger, together, they would have had combined revenue of around $18 billion last year and now, they can cut costs.

No, M&A activity is not a good sign for the economy:

There is a risk that more mergers and acquisitions will lead to layoffs, less competition and more monopolies. I was reading one article that mentioned how it is expected that OfficeMax and Office Depot will close stores that are located within the same area. Logical in terms of efficiency, it also means that workers in closed stores will lose their jobs. In addition, prices could rise because OfficeMax and Office Depot are no longer competing.

In my view, the good aspects of mergers and acquisitions outweigh the bad ones. With more money once again available from banks, this merger and acquisition activity can flush cash into the market, give companies financial strength and increase stock values.

Examples of 2013 M&A activity:

Buffett Heinz Deal ($23 billion)
American Airlines/US Airways ($11 billion)
Dell’s Leveraged Buyout ($24 billion)
Comcast/NBCUniversal ($16.7 billion)
Liberty Global/Virgin Media ($16 billion)

Sources and Resources: This Time article and this NY Times article stood out because they brought up the question of whether or not the increase in M&A activity is actually a good sign for the economy. More specific, here and here and here are articles with helpful examples.

Posted by: adminEcon
Tags: American Airlines, Berkshire Hathaway, mergers and acquisitions, Warren Buffett
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02.27.2011 | A Warren Buffett Story

If you had purchased Berkshire Hathaway stock on December 6, 1976, you paid approximately $77. At yesterday’s closing price, one share of the same firm (BRK/A) was $127,550. (Looking at the BLS CPI inflation calculator, $77 in 1976 is equal to the buying power of $298.02 today.)

Annually, Warren Buffett, the person responsible for the astronomical increase in Berkshire Hathaway’s share price, sends his letter to shareholders. 26 pages long, it is statistical, it is folksy, it expresses general investing acumen, specific performance information, and even a letter to his uncle from his grandfather about always having a financial reserve. I recommend reading it all. For now, though, I wanted to share one story from the letter. It reveals the secret to success.

The story involves Mr. Buffett’s first contact with GEICO, a firm that Berkshire Hathaway owns. As a business student at Columbia, 60 years ago, Mr. Buffett’s idol was Ben Graham, the co-author of a classic investing “primer.” When Buffett discovered that Graham was the chairman of the Government Employees Insurance Co (now GEICO), he decided, one Saturday, to visit the company’s headquarters in Washington, D.C. When he arrived, the door was locked because the offices were closed on Saturday. Buffett’s response? To knock and shout until a janitor appeared. Asked if anyone was there, the janitor took him to the office of Lorimer Davidson, an executive who later became GEICO’s CEO. Davidson spoke with his young visitor for 4 hours.

Fast forward to 1996 when Mr. Davidson made a video expressing his pleasure that his firm, GEICO, would “permanently reside” with Berkshire Hathaway. He also “playfully concluded” by saying, “Next time, Warren, please make an appointment.”

The Economic Lesson

Both Adam Smith and John Maynard Keynes wrote about the spirit exhibited by Warren Buffet as a student. Smith might have referred simply to the business activity generated by self-interest while Keynes could have taken us to the motivational role of “animal spirits.”

Posted by: adminEcon
Tags: Ben Graham, Berkshire Hathaway, entrepreneurial spirit, investing, Warren Buffett
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02.28.2010 | Notes From Warren Buffett

Released yesterday, Warren Buffett’s annual letter to shareholders, as always, included sections that make me smile:

Talking about how he uses a consistent standard to assess Berkshire Hathaway’s performance:
“That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.”

As an introduction to “What We Don’t Do”:
“Long ago, Charlie laid out his strongest ambition: ‘All I want to know is where I’m going to die, so I’ll never go there.’”

Discussing ownership of Geico:
“An old Wall Street joke gets close to our experience:
Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.”

Commenting on incorrect advice he gave to Geico management about issuing a credit card:
“I subtly indicated that I was older and wiser.
I was just older.”

On seeing a silver lining in the housing bubble cloud:
“Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.”

After stating his own responsibility for risk control at Berkshire:
“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he’s incapable of handling that job, he should look for other employment. And if he fails at it-with the government thereupon required to step in with funds or guarantees-the financial consequences for him and his board should be severe.”

And finally, an inspiring conclusion:
“At 86 and 79, Charlie and I remain lucky beyond our dreams. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a ‘business’ gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Indeed, over the years, our work has become ever more fascinating; no wonder we tap-dance to work.”

May we all tap dance to work!

Posted by: adminEcon
Tags: Berkshire Hathaway, Warren Buffett
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